Getting financially prepared to start a family
Having a baby is a wonderful experience, but are you financially ready for it?
Before you have children, it’s important to get your finances in order. Figure out how long you’ll need off work and what government support you’re entitled to. Be sure to make a savings plan, get the right insurance and find ways to boost your super.
Before you start choosing names and browsing for strollers, here are seven steps to prepare you for the financial commitment of having a baby.
1. Calculate your time off work
To start, figure out how long you and your partner want to take off work to care for your little one. Consider whether you’re planning to drop down to part-time hours during your baby’s first years.
2. Know your entitlements
Look at what kinds of financial support you’re eligible for. If you are the child’s primary carer and you fit other criteria, you could be entitled to up to 18 weeks’ paid parental leave from the federal government — even if you’re a seasonal employee, a contractor or self-employed.
Other income support schemes for families include the Parenting Payment and Family Tax Benefits. Find out what you’re entitled to, based on your financial circumstances.
3. Make a budget
Once you’ve decided how much leave you and your partner will take and the extra income support you can expect, make a household budget. Work out your current expenses and add in the additional costs of raising a child. Then, compare it with how much money you’ll have coming in. If there’s a difference, you’ll need to start putting away some extra money now.
4. Start saving
It’s never too early to start saving for your child’s future. You’re bound to have some extra expenses in the short term, so it could be worth opening a higher interest savings account or term deposit to help save for those.
You might also want to talk to a financial adviser about longer-term saving and investment strategies — especially for big-ticket costs down the track like your child’s education. Options may include investing in shares or managed funds, or paying more off your mortgage now to free up your money later.
5. Sort out your health insurance
Next to education, healthcare could be one of your biggest expenses, so make sure you and your partner have the right level of health insurance. Some couples realise too late that their policy doesn’t cover pregnancy-related expenses, and then have to face a 12-month waiting period before they can make any claims.
6. Don’t forget personal insurance
To protect your family financially, consider taking out income protection insurance. That way, if you get sick or injured and need to take time off work, you could still receive an income while you get back on your feet. Life insurance is also important as it could pay your family a lump sum if you pass away or become terminally ill.
If you’re worried about the added expense of insurance premiums, don’t despair. You can take out both life and income protection insurance through your super, so you don’t have to cover the costs from your household income.
7. Boost your super
That brings us to a very important consideration — how to keep building your super if you’re taking time off work. One option is to salary sacrifice part of your income into super now. And if you or your partner is planning to take time off while the other keeps working, splitting your super contributions between you can offer potential tax advantages.
Getting professional advice can help take the worry out of starting a family — so talk to your financial adviser today.
Source: Colonial First State
